Slowing earnings growth at global luxury groups including Hermès, LVMH and Kering sends shares tumbling
Prolonged Middle East war and social unrest in Europe dampen tourism demand, while luxury spending also falls in the US
Property downturn and tighter taxation of overseas assets accelerate the retreat of core Chinese consumers

Shares in global luxury groups are plunging. Market expectations are rapidly fading as earnings growth slows at major companies including Hermès, LVMH Moët Hennessy Louis Vuitton and Kering. Shrinking tourism and consumer demand amid the prolonged Middle East war and social and political unrest in Europe are being cited as reasons for the industry’s deteriorating conditions. Meanwhile, headwinds are also mounting in China, one of the largest luxury markets, including weakening consumer confidence caused by the property downturn and tighter taxation of wealthy individuals’ offshore trusts.

Hermès Shares Plunge

On the 22nd (all dates hereafter are local time), Hermès announced that revenue for this year’s third quarter (July–September) rose just 4.3% from a year earlier to EUR 4.1 billion (approximately USD 4.68 billion) at constant exchange rates. That marked a slowdown of 2.4 percentage points from the second quarter’s revenue growth rate of 6.7% and fell short of the market forecast of 5.2% compiled by financial data provider Visible Alpha. It was also the lowest quarterly growth rate in roughly 6 years, since early 2020, when stores around the world closed simultaneously because of the COVID-19 pandemic.

Immediately after the earnings release, Hermès shares plunged as much as 9% during trading in Paris, France, before closing down 4.94% at EUR 1,289.5 per share (approximately USD 1,469). The Financial Times (FT) also reported that Hermès shares were down about 40% from the start of the year. Its market capitalization has shrunk to EUR 135 billion (approximately USD 154 billion), with EUR 86 billion (approximately USD 98.1 billion) wiped out this year alone. Its price-to-earnings ratio (P/E), which exceeded 54 times expected earnings over the next 12 months early last year, had halved to around 27 times by early this month.

Kering and LVMH Also Face Declines

Major French luxury groups Kering and LVMH have also faced falling share prices. LVMH, which owns leading luxury brands including Louis Vuitton, Dior and Tiffany, was down 39.9% from the start of the year as of the close on the 22nd. Kering, meanwhile, closed at EUR 178.12 (approximately USD 203) in Paris on the 23rd, down 16.6% from the previous trading day, marking the largest single-day share-price decline in its history. Its year-to-date decline widened to approximately 41%.

Earnings growth is also slowing. LVMH’s third-quarter revenue this year totaled EUR 18.504 billion (approximately USD 21.1 billion), with organic growth of just 1% year on year. In particular, revenue in its fashion and leather goods division, which includes Louis Vuitton and Dior, fell 5% from the same period last year. Kering also announced on the 22nd that third-quarter revenue declined 1% year on year on a comparable basis to EUR 3.345 billion (approximately USD 3.82 billion). Revenue at its flagship brand Gucci fell 6% to EUR 1.291 billion (approximately USD 1.47 billion), performing far worse than the market forecast of -2.8%.

Uncertainty Mounts Around the World

Multiple factors are behind the broad weakness in luxury stocks. First, economic uncertainty stemming from the prolonged Middle East war has placed a considerable burden on the industry. Armed conflict between the US and Israel on one side and Iran on the other has dampened tourism and shopping demand in the Middle East, while rising oil prices and flight disruptions have also reduced visits to Europe by big spenders. Indeed, when announcing its first-quarter results in April, LVMH said the Middle East war had reduced overall group revenue by approximately 1%. Hermès also saw its third-quarter revenue in the Middle East plunge 4.5% year on year.

Social and political unrest within Europe has added to the headwinds. On the 17th, large-scale demonstrations in Paris, France, against rising living costs and cuts to public services turned violent. Louis Vuitton and Celine stores on Avenue Montaigne were attacked and their windows smashed, while Burberry, Dior perfume and Guerlain stores on Rue Saint-Honoré were looted. Luxury stores around Place Vendôme also suffered damage or suspended operations. In Milan, Italy, protests against rising living costs and other issues intensified on the 17th–18th, resulting in looting and property damage. On the 19th, stores on Via Montenapoleone, home to a concentration of luxury boutiques including Chanel, Tiffany and Dior, closed early or removed merchandise from display.

Table 1. Main Reasons for Weakness in Global Luxury Stocks

US and Chinese Consumers Tighten Their Purse Strings

US consumers, once a key driver of growth in the luxury market, are also tightening their purse strings. An analysis of credit card transactions by US-based Citibank showed that American consumers’ luxury purchases fell 6% year on year last month. That marked the third consecutive monthly decline, following drops of 4% in both July and August. The pullback was particularly pronounced in watches and fine jewelry. Market observers say heightened political uncertainty ahead of the midterm elections, along with rising US Treasury yields and mortgage rates, is weighing on luxury purchases.

A similar picture has emerged in China, which accounts for approximately 20% of global luxury purchases. According to a Bloomberg report on the 23rd citing data from 2 luxury market research firms, sales at 25 major luxury brands in mainland China, including Louis Vuitton and Gucci, recorded double-digit year-on-year declines in both August and September. Retail sales statistics released by China’s National Bureau of Statistics on the 20th also clearly showed a slowdown in consumption. Last month, retail sales of gold, silver and jewelry in China fell 9.6% year on year, while sales at department stores and specialty branded stores declined 2.9% and 10.3%, respectively, over January–September this year.

Reasons Behind China’s Spending Slowdown

The decline in China’s luxury spending is attributed to the prolonged property market downturn and weak domestic demand. China’s property market entered a full-fledged correction following the liquidity crisis at major developer Evergrande Group in 2021. Conditions subsequently worsened as developer defaults, falling home transactions and declining home prices reinforced one another. Although the Chinese government has rolled out a series of stimulus measures, including easing home-purchase restrictions and lowering lending rates, the recovery remains weak. Last month, new-home prices in China fell 0.1% from the previous month and 2.8% from a year earlier. Falling property values weaken household consumer confidence and encourage greater saving, reducing demand for luxury goods and other expensive consumer products.

Adding to this, the Chinese government’s recent tightening of taxation on wealthy individuals’ offshore trust assets has put renewed pressure on spending. Chinese tax authorities are now requiring high-net-worth individuals who have managed assets through offshore trusts to declare previously unreported income and are pursuing unpaid taxes. The move follows rules introduced in July by China’s Ministry of Finance and State Taxation Administration imposing a 20% tax rate on appreciation in the value of assets transferred to offshore trusts and on income generated by those trusts. As tax scrutiny intensifies, some wealthy individuals have reportedly begun restructuring their assets, including selling shareholdings or terminating offshore trusts to raise the cash needed to pay taxes.